advertisement
I would like to share my belief -- and this may shock folks -- that Hank Paulson has actually crafted a pretty good plan for Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs), aka "Franron." That, given the bad hand he was dealt.
We've all known for a long time that the government would stand behind the mortgage giants when push came to shove. And in this particular case, the Treasury secretary's plan comes with some pain. As proposed, these government-sponsored enterprises, or GSEs, will eventually have to reduce the size of their balance sheets in a dramatic way.
When you compare this inevitable bailout to what Federal Reserve chief Ben Bernanke pulled with the merger of JPMorgan Chase (JPM, news, msgs) and Bear Stearns, using the Fed's balance sheet, you can see that this one is far more palatable. In sum, the Treasury took a harder and more sensible tack than I'd feared it would. (I'm sure some people will disagree, but that's how I see it.)
However, the Franron bailout basically isn't good news for the economy. It's only the avoidance of more bad news, because future problems at GSEs will be less likely to deepen the freeze of the financial system. We landed where we knew we'd be one day, with Franron as a de facto ward of the taxpayers.
(The fact that the taxpayers are now in the business of making loans to the taxpayers is a totally different issue, which I don't see ever really working.)
But if this plan is carried out, we taxpayers won't be in that business too long, and it will be the best possible outcome for these two entities. Extricating Franron from for-profit business -- which has seen insiders porking up on mortgages to make the earnings grow so they can make zillions -- is certainly a step in the right direction.
More from MSN Money
Template for trouble
Having spoken positively about Paulson's handling of the situation, I would, however, like to point out what a dangerous precedent we have set in this country.I don't mean Paulson's plan for the GSEs but rather the non-GSE bailouts that are a continuation of prior bailouts -- a couple of the most offensive being those of Long-Term Capital Management and Bear Stearns.
The question is: Where are we going to draw the line? We have the auto industry looking for handouts. I can imagine the airlines and major insurance companies will be, too, if they get into big enough problems. We also have a long list of struggling large money-center banks and brokerage firms, any of which may beg for some government help.
Video on MSN Money
Doubling the national debtThe Bush White House is playing games with the budget, but the $5 trillion in liabilities from the Freddie Mac and Fannie Mae takeover should be added to the books, Jim Jubak says.
Paulson did handle the specific situation of the GSEs rather adroitly. But I don't see any effort by anyone to stop this state-run capitalism that we are now practicing here in this country. No long-term solutions are being pursued, as too many people just want painless short-term fixes, which just breed larger problems.
Alan Greenspan is the man who, during his nearly 20 years in charge at the Fed, did the most to help create the predicament that is our decimated financial system and warped economy.
Continued: Shades of Black Monday
Rate this Article
High